Should Investors Buy Into The Cryptocurrency Arena?

2017 was marked by a dramatic surge in the popularity (and price) of digital currencies. Led by strong growth in global demand, Bitcoin, Litecoin, Ethereum and scores of others have appreciated sharply. My mid-December 2017, BTC was hovering close to the $20,000 per unit level, Ethereum spiked towards $730, and Litecoin broached $330 per unit.

Of course, such is the volatility of these explosive new trading paradigms that these figures may well be invalidated by the time you are reading this article. This begs the question: Should investors pay any attention to cryptocurrency in 2018? To answer this effectively, it is important to distinguish between short-term trades and long-term investments.

For starters, an investment is typically perceived as a medium to long-term activity whereby capital is ‘taken out of circulation’ and placed into a financial instrument. When it comes to digital currencies, there are no guarantees. Consider that in January 2017, Bitcoin was trading around $990 per unit, and grew rapidly to breach the $20,000 per unit barrier towards the end of 2017. With 2,200% + appreciation, and over $18,000 per unit of gains, it’s hard to ignore digital currency as a viable investment.

In fact, Olsson Capital analysts are quick to point out that no other financial instrument in the history of mankind has grown as quickly, as sharply, or as explosively as digital currency. We can see this in the overall market capitalisation of this burgeoning new market. At the time of writing, crypto had an overall market cap of $593 billion, and growing. And yet, neither the monetary authorities in the United Kingdom nor the Fed are overly concerned about regulating cryptocurrency.

In fact, they do not believe that the trading levels, or the investment activity taking place at present are anything to be concerned about. There is simply too little market capitalisation at this juncture. Of course, if there is a tenfold increase in digital currency trading and a market suddenly worth trillions of dollars, regulation will have to kick in.

Is It Worthwhile Investing in Crypto?

If the investment timeframe is short-term, one would be remiss not to dabble in some sort of holding in cryptocurrency. If for no other reason, there is tremendous profitability by diversifying one’s portfolio to include at least a fraction of digital currency options. Other investment options should include a mix of domestic and international stocks, commodities, indices, cash, physical stores of precious metals, etcetera.

All investments in digital currency are subject to tax collection by the IRS, and any attempts to obviate these regulations will result in fines or imprisonment. That is definitely something worth keeping in mind when trading or investing in digital currencies.

There are other ways to dabble in crypto without buying Bitcoin. These include derivatives markets and the like. CFDs (Contracts for Difference) are highly effective ways of placing bullish or bearish trades on price movements of digital currency, without actually owning any. This can take place in futures markets, ETFs (currently being formulated), spread betting activity, and CFDs. Futures markets in Bitcoin launched on 10 December 2017 in Chicago.

Futures Markets May Legitimize Cryptocurrency

Multiple other BTC futures markets will be launching over time, and this is the perfect way for institutional investors to get involved in digital currency, thereby driving prices higher or lower. Futures are seen as a hedge against price drops in the actual digital currency market. Widespread trading in futures markets legitimizes cryptocurrency to a degree by introducing it to many more stakeholders in the markets.

These are some of the many reasons why it may behoove you to consider some form of derivatives trading or institutional investment in digital currency. A caveat is in order: the Tulip Bubble of many hundreds of years ago eventually burst, and everyone feels that something is going to give in the digital currency spectrum arena too. Unlike conventional financial investments where profits can only be generated on rising assets, futures and derivatives markets allow profits to be generated in any direction.